I thought you might all enjoy this little read.

Little bit Farm

REVIEW & OUTLOOK

Truth on Tax Cuts Why the Bush plan is better.

Wall Street Journal Opinion

Tuesday, September 5, 2000 12:01 a.m. EDT

Can we agree that nothing is fair in love and war and taxes? Good. Now we can turn to the matter at hand--the tax cut proposals from George W. Bush and Al Gore.

If fairness means the most number of people ought to get their own money back, then Governor Bush's proposal wins. If fairness means that the lowest-income people ought to get the biggest tax cut, then Mr. Bush's proposal wins. If fairness means that the highest-income people ought to get the smallest tax cut, then Mr. Bush's proposal wins. And if fairness means that people should not have to jump through government-approved hoops to receive any tax cut at all, then Mr. Bush's proposal wins.

If you trust us, you can stop reading. If you're suspicious, then consider each of those statements in turn.

. The Bush tax cut goes to the most people. First, it is across-the-board. It would replace the current 15-28-31-36-39.6% system of rates with a 10-15-25-33% structure. That means every single one of the 94 million taxpayers in the country will get relief.

But that's not all. The very lowest earners--those who make enough money to file, but not enough money to pay--will also get tax relief. How so? Simple.

About 30 million people file income-tax returns but do not earn enough money to pay taxes. They do, however, pay Social Security payroll taxes. These lowest earners will also receive a cut. Mr. Bush's idea to return perhaps two to three percentage points of payroll taxes for individual investment accounts represents a tax cut because that money will become real and private property. In fact, the release of two to three percentage points of the 12.4% Social Security payroll tax represents a tax cut of 16% to 24% for those 30 million return-filing, nonpaying earners. So the final total for tax relief under the Bush proposal is 124 million people. That's 80 million more than under Vice President Gore's plan.

. The Bush tax cut favors lower-income people, even without considering the advantages of his Social Security proposals. That is, the percentage reduction in income tax is largest for lower-income people. How so? Simple. The Bush plan offers a reduction in the bottom rate to 10% from 15% and doubles the child credit to $1,000 from $500. This translates into relief with capital letters. It means, according to John Cogan, economist at the Hoover Institution and adviser to the Bush campaign, that the six million two-parent, two-children families earning less that $35,000 a year would have zero tax liability; that's a 100% reduction. Those families earning between $40,000 and $50,000 a year would see an average reduction of 55%.

. The Bush tax cut does not favor the rich. This is not a flat tax or even a proportional cut, though such cuts would be more efficient in economic terms. Rather, higher income families get lower percentage reductions. Those earning $50,000 to $75,000 a year would see an average cut of 30%; families earning $75,000 to $100,000 would see an average cut of 18%; and those earning more than $100,000 would have an average reduction of 10%.

. The Bush tax cut, finally, does not require people to jump through government-approved hoops to get relief. Anyone who earns income gets a tax cut. Ipso facto.

Under Mr. Gore's plan, however, it's not so simple. For starters, taxpayers must engage in certain Gore-approved behavior to earn the right even to be considered. A taxpayer must either have a child in day care, have a child in college, be a beneficiary of an estate, have an ailing parent or be married.

Taxpayers in each of these anointed categories then must satisfy additional requirements. For example, their child must be in government-approved day care--no relief for stay-at-home moms or dads or those who drop their child at grandma's house--and, as the parents of a college student, they cannot earn above $120,000 a year (or, as a single parent, make more than $60,000 a year).

As for estate tax relief, the Gore plan is so complicated and restrictive that less than 1% of current heirs would qualify. Essentially, the estate has to qualify as a small business in which the decedent has to have "materially participated" in the business in five out of eight years preceding death, and the beneficiary must "materially participate" in the business five out of eight years following the owner's death for the next 10 years or the Internal Revenue Service could demand tax payment.

Ditto for taxpayers with an ailing parent. Under Mr. Gore's plan, the parent has to be certified by a doctor as unable to perform "one or more activities of daily living." This requirement specifies--believe it or not--"activities of daily living" as those prescribed by the Secretary of the Treasury in consultation with the Secretary of Health and Human Services. This is a level of bureaucratic oversight that even a New Democrat might find uncomfy.

Married couples also encounter maddening restraints. Tax credits are given only if the couple does not itemize deductions; unfortunately, however, 54% of married couples do indeed itemize (home mortgages and all that).

At any rate, fail one of these tests and Mr. Gore will not give you tax relief. In fact, more than 50 million taxpayers fail these tests, and thus more than half of the current 94 million taxpayers do not qualify for Mr. Gore's tax cuts. If the devil is in the details, Mr. Gore's tax proposals were crafted with a pitchfork.

Indeed, the Gore tax plan is really no tax plan at all; it's a mishmash of entitlement programs deploying the IRS to micromanage the American household. Under the Bush plan, by contrast, 123 million taxpayers would have their marginal rates lowered, with low- to moderate-income wage earners the biggest beneficiaries. Mr. Bush has offered a tax-reform plan worth the name.

In accordance with Title 17 U.S.C. Section 107, any copyrighted work in this message is distributed under fair use without profit or payment for non-profit research and educational purposes only.

http://www.law.cornell.edu/uscode/17/107.shtml

-- Little bit Farm (littlebit@calinet.com), September 05, 2000

Answers

I already spend big chunks of everyday dancing to the government dictates. Still, the same old same old seems to fool a lot of folks. Imagine 30 million people haveing to file who don't even have to pay taxes. Ergo the question: what does the government really want from these filers?

I just want to make so little income that I don't register as being alive to them. Freedom in their perception of me and family being "improvished".

-- charles (clb@watervalley.net), September 05, 2000.

Charles I think I agree with you. I want to find a way for the government to completely forget me and the best way I can figure out how to do that is to make so little money that the government dosen't want it. Unfortunately, if we keep having democrat presidents, the government wants my money even if I only make five bucks a year.

-- Joe Cole (jcole@apha.com), September 05, 2000.

I'm sorry but I grew up being taught personal responsability. The things mentioned in the Gore plan seem to be asking people to accept simple responsability for gain. Is there something wrong with that? Also the figures on Bush's plan don't add up to very high numbers for the low income. A straight across the board tax is never in the best interest of the people on the low end.

-- Nick Tepsick (wildheart@ekyol.com), September 05, 2000.

I gotta agree with Nick on this one. Every 4 years the republicans try to win the election with tax cuts. Hasn't worked because I think most people would like to see the debt payed down. Personally I would like to see the debt payed off then a consumer tax installed. Then the low income people could control taxes thenselves by not buying needless crap. Whatever happened to the consumer tax? I think the argument was that the gov wouldn't have enough money but without debt I can't think why this isn't a good plan......Kirk....P.S. Nick are you new to the forum?

-- Kirk Davis (kirkay@yahoo.com), September 05, 2000.

I like Harry Browne's Libertarian stance on federal income tax the best. Eliminate it altogether along with most of federal burocracy and let individuals learn responsibility again. If they make stupid decisions with their money, then maybe there is something to be said for survival of the fittest. I for one dont need a paternalistic government looking over my shoulder with hand in my pocket all the time. feels sort of like that soda pop commercial on TV where everybody is looking for the free $1000 in the boy's pockets.

-- Hermit John (ozarkhermit@pleasedontspamme.com), September 06, 2000.

John: Speaking of Harry Browne did you ever read his book,"How I Found Freedom in an Unfree World"? Although I don't care for his politics that book can do wonders for someone trying to get their life together.A bit out dated now but still a fun read...Kirk

-- Kirk Davis (kirkay@yahoo.com), September 06, 2000.

In response to Kirks question. Yes i am new to the forum and i find it very interesting. I enjoy problem solving and since I've been around for a few years, I've formed a lot of opinions. But on taxes I believe a flat 10% would cover everything. But if you want to help the working poor and do something positive set the rate to start paying taxes at $40,000.00 That would help the groups that need the help the most. It wouldn't hurt the tax system at all. But Bush would never think of such a thing. Daddy wouldn't let him.

-- Nick Tepsick (wildheart@ekyol.com), September 10, 2000.